impact of corporate governance strength on stock market liquidity: Emphasizing criteria Amihud, transaction volume and bid-ask spread

Subject Areas : Journal of Investment Knowledge

Allah Karam  Salehi ¹ (Allah Karam Salehi Assistant Prof. Department of Accounting, Islamic Azad University, Masjed-soleiman Branch. Masjed-soleiman , Iran.)

Received: 2018-10-14 Accepted : 2019-02-24 Published : 2021-03-21

Keywords: stock market liquidity, Corporate governance strength, Amihud’s measure, Transaction volume measure, Bid-ask spread measure,

Abstract :

Researchers previous research show that the existence of appropriate corporate governance mechanisms increases the quantity and quality of information disclosed by the company and, as a result, reduces information asymmetry. Foreover, as information asymmetry decreases, market liquidity increases. Accordingly, the purpose of this study is the impact corporate governance strength on stock market liquidity in listed companies on Tehran Stock Exchange. For this purpose, a sample of 120 companies during 2011-2017 was selected by systematic elimination sampling. The research method is library and correlation. Following Al-Jaifi et al. (2017), eight corporate governance features are used to measure corporate governance power and three different indicators (including Amihud’s measure, transaction volume, and bid-ask spread) are used to measure stock liquidity. Analysis and testing of hypotheses have been done with the help of generalized least squares regression (EGLS) and with panel data approach. The results show that there is a positive and significant relationship between corporate governance strength and stock market liquidity based on triple criteria, Amihud, Share turnover ratio and bid-ask spread.

References:

• اسلامی بیدگلی، غلامرضا و سارنج، علیرضا(1387). انتخاب پرتفوی با استفاده از سه معیار میانگین بازدهی و نقدشوندگی در بورس اوراق بهادار تهران، بررسی‌های حسابداری و حسابرسی، دوره 15 شماره 4 ، صص 16-3.


• راعی رضا، عیوض لو رضا و عباس زاده اصل، امیرعلی(1396). بررسی رابطه عدم تقارن اطلاعاتی و نقدشوندگی در بورس اوراق بهادار تهران با استفاده از مدل‌های ریزساختار بازار، دانش مالی تحلیل اوراق بهادار (مطالعات مالی) ، دوره 10 ، شماره  34 ، صص 24-13.


• مشکی، مهدی و امین پور، آریا (1395). بررسی تاثیر نوع مالکیت سرمایه‌گذاران نهادی بر نقدشوندگی سهام در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران، ماهنامه پژوهش‌های مدیریت و حسابداری، شماره بیست و پنج، صص 122-106.


• مهرانی، کاوه و نصیری فروزی، علیرضا (1396). بررسی اثر ساز و کارهای راهبری شرکتی و مدیریت سود بر نقدشوندگی سهام شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران، مجله دانش حسابداری، دورۀ هشتم، شمارۀ 1، پیاپی 28، صص 27-7.


• یعقوب نژاد ، احمد ، رهنمای رودپشتی ، فریدون و ذبیحی، علی (1390). بررسی تأثیر نظام راهبری شرکتی بر نقدشوندگی سهام شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران، فصلنامه بورس اوراق بهادار، سال چهارم، شمارة 13، صص 173-157.


• Al-Jaifi, Hamdan Amer, Al-rassas, Ahmed Hussein and AL-Qadasi, Adel Ali, (2017). Corporate governance strength and stock market liquidity in Malaysia, International Journal of Managerial Finance, https:// org/10.1108/IJMF-10-2016-0195


• Ali, S., Liu, B. and Su, J.J. (2016). What determines stock liquidity in Australia?, Applied Economics, 48(35): 3329-3344.


• Amihud, Y., (2002). Illiquidity and stock returns: cross-section and time-series effects. J. Financ. Mark. 5 (1), 31–56.


• Bacidore, J.M. and Sofianos, G. (2002). Liquidity provision and specialist trading in NYSE-listed non-US stocks, Journal of Financial Economics, Vol. 63(1):133-158.


• Bar-Yosef, S. and Prencipe, A. (2013). The impact of corporate governance and earnings management on stock market liquidity in a highly concentrated ownership capital market, Journal of Accounting, Auditing & Finance, Vol. 28(3):292-316.


• Bebchuk, L.A. and Cohen, A. (2005). The costs of entrenched boards, Journal of Financial Economics, 78(2):409-433.


• Bencivenga, V.R., Smith, B.D. and Starr, R.M. (1996). Liquidity of secondary capital markets: allocative efficiency and the maturity composition of the capital stock, Economic Theory, Vol. 7(1):19-50.


• Brockman, P. and Chung, D.Y. (2003). Investor protection and firm liquidity, The Journal of Finance, 58(2): 921-937.


• Chen, W.P, Chung, H, Lee, C , and Liao, W-L., (2007). Corporate Governance and Equity Liquidity: analysis of S&P Transparency and Disclosure. Working http://ssrn.com


• Chung, H. (2006). Investor protection and the liquidity of cross-listed securities: evidence from the ADR market, Journal of Banking & Finance, Vol. 30(5): 1485-1505, doi: 10.1016/j. 2005.03.021


• Chung, K.H., Elder, J. and Kim, J.-C. (2010). Corporate governance and liquidity, Journal of Financial and Quantitative Analysis, Vol. 45(2):265-291.


• Ding, M., Nilsson, B., & Suardi, S. (2017). Foreign institutional investment, ownership, and liquidity: Real and informational frictions. The Financial Review, 52: 101-144.


• Dumitrescu, A. (2010). Corporate governance and market liquidity, Financial Accounting and Reporting Research, Vol. 48: 423-471.


• Elbadry, A., Gounopoulos, D. and Skinner, F. (2015). Governance quality and information asymmetry, Financial Markets, Institutions & Instruments, Vol. 24(2/3): 127-157.


• El-Nader, Ghaith (2018). Does stock ownership impact liquidity and dividends?. Investment Management and Financial Innovations, 15(3): 111-121.


• Eslami Bidgoli, Gholamreza and Sarenj Alireza (2009). Portfolio Selection Using Return Mean, Return Standard Deviation and Liquidity in Tehran Stock Exchange, Journal of Accounting and Auditing Review, Vol. 15(4):3-16. (In Persian)


• Hill, C.W.L. and Jones, T.M. (1992) Stakeholder-Agency Theory. Journal of Management Studies, 29: 131-154


• Kanagaretnam, Kiridaran, Lobo, Gerald J. and Whalen, Dennis J.(2007). Does good corporate governance reduce information Asymmety around quarterly earnings nnouncements? Journal of Accounting and Public Policy, 26(4): 497-522.


• Karmani, M., Ajina, I. (2015). An investigation of the relation between corporate governance and liquidity: Empirical evidence from France. The Journal of Applied Business Research, 31(2): 631-646


• Levine, R. (1991). Stock markets, growth, and tax policy, The Journal of Finance, Vol. 46(4):1445-1465.


• Mehrani Kaveh and Nasiri Farvazi, Alireza (2016). Impact of Corporate Governance and Earning Management on Liquidity in Companies in the Tehran Stock Exchange, Journal of Accounting Knowledge, Vol. 8,1(28):7-27. (In Persian)


• Meshki, Mehdi and Aminpour, Areia (2016). Investigating the effect of ownership type of institutional investors on stock liquidity in listed Companies in Tehran Stock Exchange, Journal of Management and Accounting Researches, No. 25: 122-106. (In Persian)


• Prommin, P., Jumreornvong, S. and Jiraporn, P. (2014). The effect of corporate governance on stock liquidity: the case of Thailand, International Review of Economics & Finance, Vol. 32:132-142.


• Raei; Reza, Eivazlu; Reza and Abbaszadeh As,l Amir ali(2017). Investigation on relation between information asymmetry and liquidity via market microstructures model in Tehran Stock Exchange, Financial Knowledge of Securities Analysis, Vol. 10(34):13-24. (In Persian)


• Wang, J. (2013). Liquidity commonality among Asian equity markets, Pacific-Basin Finance Journal, 21 (1):1209-1231.


• Yaghoobnezhad Ahmad, Rahnamaie Roodposhti, Fareidoon and Zabihi, Ali (2011). The Effect of Corporate Governance Mechanisms on Stock Liquidity in Tehran Stock Exchange, Quarterly Journal of Securities Exchange, Vol. 4(13):157-173.(In Persian)   Yun, H. (2008). The choice of corporate liquidity and corporate governance, Review of Financial Studies, Vol. 22(4): 1447-1475.